Short-term credit policies and operating performance

Godfred Adjapong Afrifa (), Ishmael Tingbani (), Ahmad Alshehabi () and Hussein Halabi ()
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Godfred Adjapong Afrifa: University of Kent
Ishmael Tingbani: University of Southampton
Ahmad Alshehabi: University of Southampton
Hussein Halabi: Cardiff University

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 4, No 13, 1755-1790

Abstract: Abstract Using a sample of United Kingdom (UK) non-financial firms from 2009 to 2021, this paper examines the operating performance effect of aggressive and moderate use of trade payables and bank credit. The results demonstrate a hierarchical effect of the use of short-term credit on firms operating performance. In particular, the results show that aggressive use of bank credit achieves higher operating performance, followed by moderate use of trade payables and bank credit and then aggressive use of trade payables. We further document that operating performance of firms dealing in differentiated products, lower firm size, firms with higher market power and financially stable firms’ increases with aggressive and moderate use of trade payables and bank credit. Overall, the results indicate that firm operating performance is an increasing function of bank credit use and demonstrate the importance of short-term credit policies on firms’ operating performance. The results are robust after using a novel approach in addressing the issue of endogeneity.

Keywords: Operating performance; Aggressive use of trade payables; Aggressive use of bank credit; Moderate use of trade payables and bank credit; Nature of the product; Firm size (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11156-024-01249-5

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